I can understand that right now, investors are steering clear of banks, like Barclays (LSE: BARC). The sector has been hammered ever since the UK’s Brexit vote, and tends to suffer in any crisis. The Barclays share price, for example, fell by almost 60% in the immediate aftermath of the Covid-19 crash.
That’s a very similar fall to that suffered by Lloyds Banking Group, which seems like the pariah of the sector right now. But there’s a difference. Since that low point, the Barclays share price has come back with a 57% spurt. Since its lowest point of 2020, the Lloyds share price has gained only 21%. Our institutional investors, it seems, are more confident in Barclays’ recovery prospects.
I reckon you’d have done very well to get in on Barclays at the bottom, and I don’t mean for the obvious short-term profit. I do think the Barclays share price was way too low at the time. But I think it’s still too cheap, and that investors still have a great opportunity to grab a bargain buy.
Before I offer any more bullish thoughts, I should highlight the bearish opinion of my fellow Motley Fool writer Royston Wild. As he points out, the UK economy is in a truly shocking state, hammered by the lockdown. And banks are seeing their ability to make profits squeezed ever tighter. Royston’s pessimism is understandable.
ING is predicting a 9% setback for the economy in 2020, which is a scary figure. If we should suffer a second wave of the pandemic, things will surely turn out worse than that. And we’ve already seen world stock markets weakening on fears of a second outbreak in China.
Oh, and it seems we’re not making very good progress on the Brexit negotiation front either. A no-deal Brexit would not help our banks, and could bring yet another Barclays share price hit.
If you want even more pessimism, Barclays and the other big high street banks are facing increasing competition from challenger banks. But during a downturn, I can’t help thinking bigger is better, and Barclays is more resilient than the smaller competition. Judging by Virgin Money, which I rate as one of the best, the City sees it that way too. Since the start of 2020, Virgin Money shares are down 49%, very close to Lloyds’ overall 51% loss. Compared to that, Barclays’ year-to-date fall of 38% looks almost buoyant.
The Barclays share price could stay low for some time yet, and I see no urgency to buy. In fact, we could still see more dips and better buying opportunities in the future.
Barclays share price
But looking at the long term and the next decade or so, I’m very optimistic. I’m upbeat about the UK’s economic future, and a return to growth could quickly turn that predicted 9% shrinkage around. And when the economy strengthens, I can only see banks coming back strongly too.
In the meantime, the reinstatement of banking dividends should prove a key milestone. And when banks are allowed to resume payments, I expect to see a Barclays share price boost.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.